This article is one of a series of summaries of progressive federal policy ideas written by Think policy fellows. Think does not have a position on any of the proposals mentioned in this summary as we are focused on state-level policy, rather we offer these descriptions as helpful tools for candidates and elected officials who may be interested or face questions on these topics.
In the United States, the richest 130,000 families hold as much wealth as the bottom 117 million families combined. This extreme wealth concentration is the result of, amongst other reasons, the wealthiest Americans being able to avoid paying their due in income taxes by generating wealth through investments (which is not included in income tax). In order to address and reduce acute inequality in America, a wealth tax has been proposed.
A wealth tax is a tax on a person’s net worth over a certain threshold each year: meaning assets minus debt. This is different from an income tax because it taxes accrued wealth rather than income. This would be a new type of federal tax because property tax (an asset) is usually imposed at local levels, estate taxes (while on wealth) are only imposed after death, and income taxes tax income -- not accrued wealth. This would raise taxes on the rich without increasing income taxes on everyone else. To be clear, the average citizen would not have to pay any more in taxes: only individuals who have accumulated tens of millions of dollars in wealth would be taxed.
While numerous wealth tax plans have been proposed for the 2020 election this memo will focus on the two most popular plans: Senator Warren’s and Senator Sanders’s.
Senator Warren: “The Ultra-Millionaire Tax” known as the “2 cent tax”
- A 2% annual tax on household net worth over $50 million and under $1 billion—e., for every dollar in this range, 2 cents is levied for the government
- A 6% annual tax on household net worth above $1 billion
Warren’s wealth tax would affect about 75,000 households and is estimated to generate $3.75 trillion over the next decade. Revenue would go towards universal childcare, Medicare-for-all, and tuition-free education, amongst other programs.
Senator Sanders: A graduated tax called the “Tax on Extreme Wealth”
- There are eight brackets for this wealth tax: starting with a 1% annual tax on married couples with a net worth over $32 million. The tax gradually increases to 8% on wealth over $10 billion.
- Extremely wealthy single people would still incur a wealth tax, with tax thresholds cut in half (so a 1% annual tax on a single person’s wealth over $16 million).
Sanders’s wealth tax would impact 185,000 households and is estimated to generate $4.35 trillion over the next decade. Sanders notes that revenue “would go toward paying for...Medicare-for-all, affordable housing, and universal childcare.”
Proponents of a wealth tax argue the following:
- Ultra-wealthy Americans should contribute: Income taxes struggle to reach the wealthiest citizens. Unlike lower and middle-income taxpayers, the highest earners typically make most of their money from investments and property holdings (that avoid income-taxes) or use other tax loopholes. A wealth tax would reach these citizens, close the loopholes, and ensure everyone pays their fair share in taxes. Additionally, ultra wealthy business people built their success using a publicly-educated workforce and publicly-funded roads; because these individuals have benefited from public support, they should contribute to a wealth tax that funds public programs.
- Diverse, bipartisan support: Multiple polls show support on both sides of the aisle. Most recently in a poll conducted by Reuters/Ipsos in January 2020, a wealth tax was supported by both party respondents: 77% of Democrats and 53% of Republicans. A wealth tax is also supported by lower-income citizens and even millionaires
- Reduces income inequality: The richest 130,000 families hold as much wealth as the bottom 117 million. Because the revenue raised would go towards public funding for education, childcare, healthcare, etc., aimed at lower and middle-income families, it would alleviate struggles for millions of Americans and afford them the opportunity to secure a better job and brighter future.
- Support from dif The idea of this tax has been well received -- earning diverse support from Democratic and Republican voters as well as to lower-income citizens and even millionaires.
Opponents of a wealth tax argue:
- It’s unconstitutional: Some point to the constitutional requirement that a ‘direct’ tax must be apportioned among the states by population (Article I, section 9); and, because the wealth tax is not apportioned by population, it is unconstitutional. However, the American Bar Association rebukes that a wealth tax is in fact unconstitutional. In short, their argument is that a wealth tax is not a direct tax in the way the Founders’ intended.
- Yet another slippery-slope tax: The American people already pay numerous taxes on everything from income to sales, food, and gas. Many are tired of another imposition by the government and fear that the threshold for this tax would be lowered, eventually reaching the average American.
- Not enforceable: It’s common knowledge that ultra-wealthy Americans utilize ‘tax havens’ in other countries and loopholes throughout the American tax code to minimize their tax liability. Because the ultra-wealthy will have high incentives to avoid this tax, it will not be effective. One such loophole cited from the Warren plan: the same thresholds are set for individuals and married couples, which could hypothetically enable some wealthy couples to evade the tax by getting divorced.
 Kapur, 2019. “Elizabeth Warren’s Tax Proposal Aims at Assets of Wealthiest Americans.” Bloomberg. https://www.bloomberg.com/news/articles/2019-01-25/senator-warren-proposes-ultra-millionaire-tax-of-as-much-as-3
 Assets include cash, residences, personal property, trust accounts, etc.
 Warren states that revenue would go towards universal child care for every child age 0 to 5; universal pre-K for every 3 & 4 year old; raise wages for all child care workers and preschool teachers; tuition-free access to public technical schools, 2-year colleges, and 4-year colleges; $50 billion for historically black colleges and universities; and student loan debt forgiveness for 95% of those with such debt.
 In more detail, the ABA explains, for the Founders, a necessary element to be a direct tax is that apportionment among the states by population must be reasonable and just. Apportionment of a wealth tax by population in today’s society would require the injustice of substantially higher tax rates in poorer states. When that happens, under the Founders’ standards, the tax is not a direct tax for which apportionment is required.